Final answer:
It is generally true that long-term assets should be financed with long-term debt and equity to match the asset's lifespan with financing. Firms have various methods for raising capital, and choosing between debt and equity impacts control and financial flexibility.
Step-by-step explanation:
It is generally true that it is desirable to finance permanent assets, including "permanent current assets," with long-term debt and equity. When firms make decisions that involve capital expenditures, like purchasing machinery or building new plants, or when they finance projects that have long-term benefits, they often opt for financing options that match the lifespan of the assets. Financing long-term assets with long-term funding sources helps in matching the duration of the asset's productivity with the financing and eases cash flow planning.
Firms must consider various methods to raise financial capital such as early-stage investors, reinvesting profits, borrowing through banks or bonds, and selling stock. The choice between debt and equity financing affects the company's control, cash flow, and financial flexibility. Borrowing comes with the commitment of scheduled interest payments but allows a company to retain more control, while selling stock means sharing company ownership but without the burden of debt repayments if income is insufficient.